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​Generally, a money transmitter is an entity that provides money transfer or payment services. Common examples include PayPal, Western Union and Barclays.

Federal Money Transmitter Laws

The Bank Secrecy Actand its related regulations impose anti-money laundering (“AML”) regulations on money service businesses (“MSBs”), which include money transmitters. If FinCEN determines an entity is a money transmitter, theconsequencesare that you must:

Register with FinCEN;

Have a money laundering risk assessment completed;

Adopt written AML policies;

Have a qualified compliance officer with adequate funding for your given risk level;

Train employees to implement your policies;

Have regular, independent testing and review of your compliance program;

File extensive reports with FinCEN about customer information and transaction data; and

On March 18, 2013, FinCENpublishedguidance that it would not distinguish between fiat currency and digital currencies for money transmission law purposes. On January 30, 2014, FinCENpublishedadditional guidance.

Generally, whether a person or entity handling crypto counts as a money transmitter depends what the cryptocurrency is used for, and for whose benefit. It does not depend on how it is obtained or how it labels itself.

Exchanger – An exchanger exchanges crypto for fiat, crypto, or other assets.

Administrator – An administrator has authority to issue or withdraw crypto from circulation.

User – A user obtains crypto for their own use and benefit.

Based on FinCEN’s releases, activities must involve either “acceptance” or “transmission” of crypto to trigger the regulations:

The following constitute money transmission:

Businesses that accept crypto from one person and send it to another qualify as money transmitters.

Payment processors that accept crypto from a business’s customers and send fiat to the business are usually money transmitters.

A business that exchanges fiat for crypto.

The following do NOT constitute money transmission:

If someone mines crypto for their own purpose and benefit, they are not an MSB. This includes if it used to buy goods and services, pay debts, or make distributions to the business owners.

However, if a person or business mines crypto and transfers it to third parties at the direction of sellers, creditors, owners, or counterparties involved in the transactions described above, it could constitute money transmission.

Persons and businesses that exchange cryptocurrencies for goods and services are not money transmitters.

State Money Transmitter Laws

Under state laws, a money transmitter must apply for a license. At the federal level, if you meet the above requirements, you can register with FinCEN. That is to say, FinCEN doesn’t exercise discretion over whether you get a license. But at the state level, even if you meet all of a state’s requirements, the state has discretion to deny your license. In other words, state money transmitter licenses are more difficult to obtain and less guaranteed.

Importantly, state money transmission laws can apply to businesses that have no physical presence in the state if that business solicits or services any state citizens.

Many states have issued guidance. The below is a general summary as of August 2018. Please note that each state’s laws may have unique definitions of crypto or other nuances, and thus should be analyzed individually.

In 2016, the state required that Bitcoin businesses must have significant reserves.

Two proposed bills, SB 2853 and SB 3082, would reclassify crypto businesses as money transmitters and require exchanges to get licenses.

Illinois – In June 2017, Illinois stated that persons or businesses engaged in the transmission of only crypto are not money transmitters.

Kansas – On June 6, 2014, Kansas published guidance that persons or businesses engaged solely in the transmission of crypto are not money transmitters.

North Carolina – In June 2016and July 2017, North Carolina enacted HB289 and HB229, respectively, that subject persons and businesses engaged in crypto transmission to the state’s money transmitter laws.

Oklahoma – Oklahoma supplemented a statute to state that a Bitcoin recipient does not have the same protections a money transmitter is entitled to.

Oregon – In May 2015, Oregon required that exchanges are licensed as money transmitters.

I had no idea that there were various regulations for money transmitter bonds. This is a cool idea that makes it a lot nicer and safer for others that are involved. My cousin might like knowing this as he researches cryptocurrency more.

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